Arm ARM 4.09% Holdings and Qualcomm QCOM -2.44% will go to court in Delaware on Monday morning to fight. They are both friends and competitors. Both companies and the chip ecosystem as a whole have a lot riding on the result of the trial.
Arm designs are the basis for some of Qualcomm’s most important chips, like the processors that run phones, PCs, cars, and applications that connect things to the internet. Charles Shi, a researcher at Needham, says that Qualcomm made up 10% of Arm’s income in fiscal year 2024.
Arm and Qualcomm stock prices were both going down on Monday morning, by 4% and 2.2%, respectively.
How did it happen that these partners were in court?
In the beginning of this story, more than ten years ago, Qualcomm tried to copy Apple AAPL +0.33% by making its own chips. Apple had shown that custom processor cores were the best way to get better speed and use less power. They did this by building on the technology that Arm licenses.
Qualcomm tried many times to catch up to Apple but failed. Apple got more chips, which made its iPhones, Macs, and iPads faster and gave them longer battery lives.
Gerard Williams III, Apple’s top chip creator, was one of the people who gave the company an edge. With experts from Google, Williams left Apple in 2019 to start a new company called Nuvia.
Even though Nuvia never put out a product, in August 2020 it published a white paper on its new Arm-based custom CPU cores. This got a lot of attention in the chip design community, including at Qualcomm, which saw the start-up as a way to speed up its customization efforts.
It cost $1.4 billion for Qualcomm to buy Nuvia in 2021. Williams was made Senior Vice President of Engineering at Qualcomm, a job he still has today.
The first things that Qualcomm revealed came from their purchase of Nuvia in 2024: chips for high-end smartphones, AI PCs, and cars. The new Oryon CPU cores that came with Nuvia are in all of them, and some users already have these chips.
But Arm is pushing back because all of these tailored chips are still based on its designs. It thinks that Nuvia giving Qualcomm intellectual property is against the terms of its license deals with both companies. Arm says that the Nuvia technology is tied to Nuvia’s license and can’t be given to someone else. It wants the court to order Qualcomm to get rid of all the intellectual property that came with Nuvia. This IP is used in some of Qualcomm’s most important chips today.
Qualcomm says that the Nuvia technology is covered by its own Arm license.
Before the trial, both businesses said they were sure of their cases.
In Judge Maryellen Noreika’s “rocket docket,” the hearing starts Monday and will last for a week. There will be 11 hours for each side to make their case.
There is a lot at stake for Qualcomm. If it lost, it would have to talk about a new license deal, and Arm would be able to get what it wants. The cost of its license could go up a lot, which would cut into profits. Since Arm first sued in 2022, Qualcomm shares have gone down 17%.
Arm, which has been called the “Switzerland of Tech” for a long time, may be trying something new with this study. Anyone can get a license to use its technology, and it doesn’t go up against clients. That approach helped Arm build an ecosystem with 300 billion chips over the years. Arm makes parts for almost all smartphones.
It has been more aggressive since Rene Haas became CEO in 2022. For example, it sued one of its best users and raised prices for new technology by twice as much. Talks also say that Arm and SoftBank 9984 +0.99%, which owns a lot of the company, are making AI chips that will fight with its customers for the first time.
A loss in court could make Haas change his mind about Arm’s position.
When other Arm customers see this legal fight, they might start to think about other ways to design their chips in the future.
RISC-V is an open-source technology that can be used and changed by anyone for free. Over time, chip designs that use RISC-V could become a real threat to the Arm environment.
Qualcomm has already set up a business partnership in Europe to make RISC-V chips for cars. Nvidia NVDA -1.82% said at the recent RISC-V Summit that RISC-V is used in many of its products. RISC-V is also used in Google’s own AI chip, the TPU.
At the same time, China, which gave Arm 21% of its revenue last fiscal year, wants to rely less on Western technology. RISC-V is being used by a lot of Chinese chip makers.
If Arm plays its hand too safe, even a win at trial could turn into a long-term loss, which would change the way chips are made.
Both Qualcomm and Arm have strong reasons to settle the dispute, but they have both taken very strong stances. The document at the center of the fight, Qualcomm’s Arm license, has never been made public, so it’s impossible to even guess what will happen.
That being said, investors and everyone else in the chip world will wait for this week’s hearing.
